Who is better for Markets: Biden or Trump?
❗️Not a subscriber yet? Sign up to the CI Newsletter here.❗️
As we await the results of the US election, we’re going a bit off script this week to run through a few scenarios for markets with a Trump or Biden administration. As much as possible, we’ll work to remove our own political bias, but we’re human beings, so it’s not entirely possible.
We’ll attempt to do this analysis through the lens of a few tangible considerations in the US: Covid, Stimulus, Trade.
President Trump’s recent bout with Covid brought some direct experience with the virus that many thought had been missing. It changed his perspective, for sure. If anything, it seems to have made him bolder on the Covid issue.
Will we have a vaccine or therapeutics or herd immunity? Nobody knows and – to be honest – it will happen after Tuesday, so it really doesn’t matter for the purposes of the election horizon.
Joe Biden has made clear in several speeches that a win would likely mean renewed lockdowns and, possibly, nationwide mask mandates. Whether or not we agree with the efficacy of these policies, the economic results of these policies over the last 9 months have been clear: demand is removed from the economy and demand recovery is incredibly slow. Crude prices, the closure of small business and other factors (covered extensively in previous CI Newsletters) illustrate the economic impact.
While equity markets have flourished in the Covid period owing to emergency fiscal stimulus, central bank intervention and the on-again-off-again promise of renewed stimulus and/or vaccines, small business has suffered terribly with hundreds of thousands of firms closed since February. And just last week, ExxonMobil was the latest of the large companies announcing layoffs up to 16% of its US staff, later announcing it will write off $30bn of natural gas related business.
On the campaign trail, Trump has stated that he would work to end Covid restrictions. Our sense is that, if he wins, he may call the Federal workforce back to their offices shortly after the election. The economic impact of this could be massive. The US government employs more than 22 million Americans. Bringing Federal workers back to the office would drag several millions of workers back into the workforce to provide meals, transportation, and other goods and services to those US government workers. This one action would provide a major stimulus to the American economy.
We’re neutral on stimulus. It’s very simple: Politicians like to give away money. There will – without a doubt – be a stimulus package after the election. It will be large, but if businesses and consumers don’t have confidence that it’s enough to get the economy past Covid, any impact on markets will be short-lived.
Under a Biden administration, we would expect another large, broadly based stimulus in late Q1 or early Q2. Under Trump, we would expect ongoing targeted stimulus until growth rates are deemed sustainable.
Trade is a complex topic that not many people understand, including several trade economists. The drag that subsidies and non tariff barriers have placed on US trade for two decades cannot be underestimated.
Was it necessary to renegotiate NAFTA? Maybe, but it was certainly not imperative. Has US trade with Asia been tilted in favor of Asian exporters since the late 90s? Absolutely, especially as exporting countries have layered increasing levels of subsidies as a direct payment to exporting firms as well as regulations keep competing goods out of their home country. We’ve written extensively on this over the past 3 years.
A Biden administration would attempt to move rapidly back to a multilateral 2015/16 status quo trade environment, re-engaging on agreements like the Trans Pacific Partnership (TPP). Rejoining the TPP would allow multinationals to retain their current Asia-centric supply chains, which could be efficient for companies. Whether it would help the US economy is questionable, however.
More than two years ago, we wrote several pieces on the way the US-China trade war would actually help Mexico more directly than it would just about any other country. Changing trade patterns is not quick, so we haven’t seen massive movement of manufacturing to Mexico yet, but we are aware of several electronics and automotive firms that are diversifying their sites into Mexico. We’ve seen Trump’s approach to trade policy. This is a long game and it’s very difficult to execute.
On balance, we see moderate short-term difficulties for markets with a Trump win. We see weak near-term support for markets for a Biden win. As we enter Q1, we believe these trends will reverse with more medium-term strength with a Trump win or medium-term weakness with a Biden win.